Here's Why I Think Coastal Financial (NASDAQ:CCB) Is An Interesting Stock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Coastal Financial (NASDAQ:CCB). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Coastal Financial

Coastal Financial's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Coastal Financial has grown EPS by 30% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Not all of Coastal Financial's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Coastal Financial maintained stable EBIT margins over the last year, all while growing revenue 79% to US$116m. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Coastal Financial's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Coastal Financial Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

We do note that, in the last year, insiders sold -US$497k worth of shares. But that's far less than the US$1.5m insiders spend purchasing stock. This makes me even more interested in Coastal Financial because it suggests that those who understand the company best, are optimistic. It is also worth noting that it was Vice Chairman Andrew Skotdal who made the biggest single purchase, worth US$1m, paying US$40.50 per share.

On top of the insider buying, it's good to see that Coastal Financial insiders have a valuable investment in the business. With a whopping US$92m worth of shares as a group, insiders have plenty riding on the company's success. At 18% of the company, the co-investment by insiders gives me confidence that management will make long-term focussed decisions.

Is Coastal Financial Worth Keeping An Eye On?

For growth investors like me, Coastal Financial's raw rate of earnings growth is a beacon in the night. Not only that, but we can see that insiders both own a lot of, and are buying more, shares in the company. So it's fair to say I think this stock may well deserve a spot on your watchlist. Even so, be aware that Coastal Financial is showing 1 warning sign in our investment analysis , you should know about...

As a growth investor I do like to see insider buying. But Coastal Financial isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.